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Capital Markets

Brazil: Antitrust regulator starts well

M&A activity drops after introduction; Cade’s response faster than predicted

M&A activity has dropped in Brazil in the months after the introduction of the country’s new antitrust regulations and governing body.

The Conselho Administrativo de Defesa Econômica (Cade) came into force at the end of May. During the preceding three months, according to Dealogic, 428 M&A deals were announced. This total slumped to 190 in the three months after Cade came into effect.

Much of this discrepancy can be attributed to a rush in deals closing before Cade began operations – boosting the deal tally for March to May. Bankers sought to avoid the regulatory risk of the new regime, which requires companies with operations in Brazil to seek regulatory approval for deals when one Brazilian organization has revenues of more than R$400 million and the other more than R$30 million.

Previously, deals could close and become subject to regulatory clearance only in special circumstances.

More worrying than this approval – which, after all, just places Brazilian antitrust regulation on to the same legal basis as in the US and Europe – was the fact Cade was itself beginning operations, having been created from the merger of three regulatory bodies.

First impressions

However, according to Fabíola Cammarota, partner in the M&A and antitrust practice of law firm Souza Cescon, these fears were unfounded. "The first impressions have been good – the system is working well," she says. "They knew they needed to do a good job to ensure that people here respected the new authority and to make sure people would follow the new procedures. The message for international investors is that Brazil is still open for business. There is no regulatory risk – the law is working."

Cammarota says Cade made a commitment to issue summary judgements within 30 days but has been faster – on average, the body’s verdicts on straightforward cases have been released after 18 and 20 days. It has yet to be tested on complex cases but one intermediate case, which considered the merger of small bank BMG and Itaú Unibanco, was ruled on in less than 60 days – fast by any international standards.

"We worked on one deal that required Brazilian and European Commission approval, and Cade responded faster than the EU," says Cammarota. "We also had one case that required fast ruling because one of the parties was in the Brazilian equivalent of Chapter 11, and Cade conducted its analysis very quickly and was open to discussion on all the legal issues involved."

Cammarota admits the real test for Cade will come in more complex cases, and when deal volumes reach higher levels, but she says the early signs are positive.

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